Sheridan Admans outlines six funds that have the potential to allow an investor to build a well-diversified ISA.
Six of the best funds for your ISA
Pyrford Global Total Return
This fund may be attractive to investors who are looking to at least beat inflation while taking less risk than the broader market. The funds goal is to preserve capital and not to lose money over a 12 month period, beating inflation. Fund managers aim to do this by a significant margin over the long-term and aim to deliver returns with less volatility (risk) than the broader UK equity market.
This fund gives access to a simple absolute strategy that seeks stable returns in a multi asset fund and avoids the use of derivatives and selling short stocks. The fund, though, does use currency forwards contracts. Unlike many absolute funds, the turnover of assets in this fund has been historically low. On the fixed income (bonds) side, the fund only invests in high quality government bonds.
GAM Star Credit Opportunities
Those seeking high income returns that are worried about the interest rate environment may find this fund attractive. The manager aims to produce high income returns by investing predominantly in investment grade or high-quality issuers, including the subordinated corporate bond issues of investment grade business. This style of investing assumes there is a small likelihood of a default on a subordinated high yield issue from a high-quality issuer such as Vodafone, HSBC Holdings or Prudential for example.
The key attraction of this fund is that it invests in Fixed Income issues as well as Floating Rate Notes (FRN) and Convertibles. This combination should provide a cushion regardless of rates rising or falling. FRN notably provides insurance against an unexpected future rise in interest rates and, importantly, Convertibles should also outperform in a rising rate environment.
LF Miton UK Multi Cap Income
With questions remaining over the direction of Sterling combined with the barrage of noise around Brexit negotiations, this fund’s focus on multi-cap investing provides some broad diversification while uncertainty remains.
Gervais Williams, the fund's manager, describes this as a bottom-up investment approach, identifying companies based on their fundamentals, e.g., cash flow, income and growth prospects. It therefore aims to provide shareholders with an attractive level of dividends coupled with some capital growth over the long term by investing the broad market cap spectrum of UK quoted companies. This fund offers access to an equity income stream that is diversified across the market’s small, mid and large capitalised companies.
This fund is managed by one of the industry’s most respected asset managers and founder of the business, Terry Smith. Terry’s investment style is focused on high conviction, highly concentrated portfolio with a long long-term ‘buy and hold’ strategy; unlike many others.
Investors should appreciate that the portfolio is more defined by the companies it will not invest in, rather than those it does. Preference is for defensive companies who are resilient to change, specifically technological innovation, and who have existing advantages that are difficult to replicate. Criteria for inclusion define companies that have a high certainty of growth, resulting from reinvestment of cash flows and which do not require significant leverage to generate returns.
Legg Mason Japan Equity
Japan remains one of our preferred regions and this particular fund seeks to benefit from the economic, demographic and structural changes that the country is continuing to face. The portfolio will vary between 25-60 stocks, with the lower the number clearly indicating the strength and conviction the manager has in those companies. Around 80% of the portfolio will be seen as core long term holdings, whilst the remaining 20% will be used for more short to medium tactical investments.
The fund has the flexibility to invest across the entire market cap spectrum albeit generally focussing on those between £330m and £1bn. Investors should be prepared to accept a higher degree of volatility with this fund but for those seeking the potential for strong growth, this fund may well be suitable.
Threadneedle US Equity Income
This fund is a relatively new entrant to our preferred range of funds and is most suitable for those seeking large and mid-cap equity income exposure from the US that believes the economic expansion story has some way to go.
Fund manager Nadia Grant aims to provide income with a preference for companies that are growing their distributions and which have the potential to grow the amount invested. Many of the top 10 holdings within this portfolio are large multinational names who generally are familiar to us in our everyday lives such as Apple, Microsoft, Cisco, Pfizer and Johnson & Johnson. The fund has larger positions in Consumer Staples, Energy and Real Estate, the latter being an area in which Grant has a solid background, which supports the higher index weighting in the fund.
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